In general, people see bankruptcy as a last resort when an event has occurred that substantially disrupts their personal and financial life. Often a divorce, loss of a job, the struggle to obtain a new job, or a death in the family can lead a person to seek relief in bankruptcy. Whatever your reason for choosing bankruptcy, you should be equipped with general knowledge to make the process simpler. Of course, the best way to ensure a smooth bankruptcy process is to hire a qualified and competent attorney to represent your interests during the bankruptcy. We are such attorneys and we can certainly help you navigate the complicated process of bankruptcy. If you are considering filing for bankruptcy, this post will help you understand some of the terms and requirements for filing a chapter 13 bankruptcy. For individual debtors, the first choice is whether to file a chapter 7 or 13 petition. Sometimes, however, that is not a choice because of the debtor’s income. But for the sake of clarity, this post will focus on chapter 13 only.
Debtors are more inclined to choose a chapter 13 bankruptcy because it has a less damaging effect on your future credit rating and because it allows the debtor to keep their assets, as opposed to having those assets liquidated. Morality also encourages people to file chapter 13 bankruptcies, because there is a general understanding that most consumers feel obligated to pay their debts. Your reason for choosing a chapter 13 bankruptcy is respected and understood. We want to make sure you have all relevant information to make an informed and correct decision for you and your situation. Give us the opportunity to discuss your options before you file to avoid any unnecessary conversion fees.
With that said, not all debtors are eligible to file a chapter 13 bankruptcy. Only individual debtors with primarily consumer debts, who have regular income, are eligible to file under chapter 13. Consumer debts are those that are incurred for household, personal, or family purposes. Essentially, if the debt is incurred on behalf of business, it is not a consumer debt. The requirement that the debtor be an individual does not mean that co-debtors, such as a husband and wife, cannot file the petition. Rather, it means that a business (other than a sole-proprietorship) is not eligible to file under chapter 13. Last, the requirement that the debtor have regular income is broadly defined. The income can come from a variety of sources. The requirement is simply that the income is received with regularity and can be relied upon by the debtor. Typically, debtors qualify if they earn wages at a job.
The debtor initiates most consumer bankruptcies voluntarily. In fact, an involuntary petition for a chapter 13 bankruptcy is not allowed. The debtor must voluntarily choose to file a chapter 13 petition. When you file a bankruptcy petition, the court imposes what is called an automatic stay. Basically, the stay protects you from further collection efforts by your creditors. From the moment you file for bankruptcy, creditors are no longer allowed to seek collection from you, threaten you with legal proceedings, or actually file those legal proceedings against you and obtain a judgment. The stay is subject to various exceptions and we can discuss in more the detail the coverage of the automatic stay when you visit for a consultation.
When you file a bankruptcy petition, you will also have a duty to provide additional documentation about your finances. This includes, but is not limited to, a list of your creditors, a list of the current assets you own, and information about your current income and expenses. Your attorney can help you gather and prepare this information. When you speak with your attorney about this information, it is extremely important that you are honest and forthcoming. Failing to disclose a creditor or the amount of money you earn can result in serious consequences during your bankruptcy case, including the possibility of dismissal. You will incur a filing fee of $75 when you file a chapter 13 petition. Additionally, as an individual debtor, you must attend available credit counseling at least 180 days prior to filing for bankruptcy. These courses can be accessed in an online format. Failure to complete this course could result in substantial consequences.
Chapter 13 differs from chapter 7 in that your non-exempt assets are not collected and then sold to pay off your debts. Instead, you and your attorney will work with the court to establish a plan for repayment. Depending on your income, the plan will last between 3 and 5 years. All of your income will be calculated and expenses deducted to determine a monthly disposable income. All of that disposable income must be dedicated to the repayment plan. When the court confirms your repayment plan, you are absolutely obligated to comply with the terms of the plan for the duration of the plan. The plan is subject to modification, but this is why it is extremely important for you to understand what you are agreeing to in a chapter 13 bankruptcy. If you fail to make the required payments under the plan, your case can be converted to chapter 7 or dismissed. If you complete the plan, however, your debts will be discharged, subject to some exceptions, and you will receive that fresh start. Committing to chapter 13 plan payments is not easy. You should make time to thoroughly discuss this option with your attorney before committing to a chapter 13 plan.
If you are considering bankruptcy, give us a call. We can help you with the process. We will keep you informed and aware of everything that occurs. If you have any questions, we can get you the appropriate answer.